The hubby and I have an SUV. I remember when we first got it, I felt like I was 10 feet above the road. And for the first time, I started paying attention to clearance signs.
Highway bridges obviously are not an issue. But when we park in garages, especially some older ones, I get a little nervous. Will we be able to squeeze in without scraping the roof? The hubby always says it's not a problem, but I still worry until we're safely parked.
A similar consideration of tax clearance warnings is necessary in order to navigate several tax breaks.
In some cases, a tax deduction or credit is not available or is reduced if your adjusted gross income, or AGI, exceeds a certain amount. The income ceilings tend to vary according to the tax break.
But several itemized tax deduction clearance amounts are set at a percentage of your AGI.
And they are today's Countdown to Oct. 15 tax tip.
Many medical deductions: Schedule A begins with medical and dental expenses. But relatively few itemizers get to claim these expenses because you must have so many before you can deduct them.
You must have enough unreimbursed medical/dental bills so that the total exceeds 7.5 percent of your AGI. That means if your AGI is $50,000 then you need more than $3,750 in medical expenses.
And note the "more than" requirement. If your eligible medical and dental costs came to $3,800 then you can only deduct $50. That's the amount that exceeds the 7.5 percent threshold.
There are ways to maximize your medical deductions:
- Travel costs to and from medical treatments and even the mileage to pick up prescriptions. The Internal Revenue Service adjusts the allowable mileage rate at least once a year to account for inflation.
- Insurance payments from already taxed income, including a portion of long-term care premiums.
- Co-payments and uninsured medical costs, typically vision care (extra pair of glasses or set of prescription contact lenses), some dental treatments, hearing aids, and artificial limbs.
- Alcohol- or drug-abuse treatments.
- Laser vision corrective surgery.
- Weight loss programs deemed medically necessary by a physician. That doctor OK requirement means you can't just write off low-calorie meals you buy at your grocery store.
- Other medically necessary costs prescribed by a physician.
The generally "medically necessary" expenditures could include such things as renovations, for example, to make your home wheelchair accessible. Or it could be as simple as a claim for at least part of the costs of the humidifier added to your home's HVAC system to ease your child's asthma at the recommendation of your pediatrician.
But be careful here and make sure you document, document, document these unusual medical expenditures because they could raise IRS questions.
The IRS has a full list of qualifying medical expenses in Publication 502.
Work expenses and other miscellany: If you have work expenses for which you weren't reimbursed, you might be able to claim them as miscellaneous expenses on Schedule A.
But as with medical costs, you must meet and exceed an AGI threshold. In this case, it's 2 percent.
Allowable expenses here include job search costs; investment related costs, such as the fee for the safe deposit box where you keep your stock certificates; and even the cost of doing your taxes, such as accountant fees or the cost of your computer tax preparation software.
IRS Publication 529 has more details on what's deductible as a miscellaneous expense.
Charity limits, too: One of the most popular itemized deductions is for gifts to IRS-approved charities. And for most of us, there's no limit on how much we can give and deduct.
But very, very generous taxpayers need to be careful.
There are limits on how much you can give. They range from 50 percent to 30 percent to 20 percent of your income based on the type of charity to which you contribute.
The 20 percent and 30 percent donation deduction limits apply to specific gifts and groups, typically private charities. The rules are complicated, so if you find yourself considering a donation to which they apply, hire a tax pro to help you.
Most of us, though, give to public nonprofits that cite their IRS 501(c)(3) status in their donation requests. These include churches, religious organizations, hospitals, educational organizations, private operating foundations or other organizations that receive a substantial portion of their support from the public or the government.
You can give up to 50 percent of your AGI to these groups in one tax year.
This means if you give $10,000 to your university's foundation to endow a scholarship, you can claim that amount as tax deduction as long as you meet the other charitable gift tax rules and your AGI is more than $19,999.
So go ahead and hang onto your tax receipts and documentation in case you can deduct these expenses on Schedule A. But note that it might take a lot more than you realized.
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